The Securities and Exchange Board of India (SEBI) on Tuesday passed a second interim order against Brightcom Group and 22 other persons, including Chairman & CEO Suresh Kumar Reddy and CFO Narayan Raju for prima facie irregularities in the preferential allotment of warrants and shares between FY20 and FY21.
While both Reddy and Raju have been barred from holding directorial or key managerial positions at any listed company or its subsidiary till further orders, Reddy has also been banned from accessing the securities markets.
“Mr M Suresh Kumar Reddy is hereby restrained from buying, selling or dealing in securities either directly or indirectly, in any manner whatsoever until further orders,” the order reads. It further gives Reddy 3 months (or till expiry, whichever is earlier) to close or square off any open positions he may have in any exchange traded derivative contracts.
Justifying its decisions regarding these two executives, the order said, "there is a real apprehension that (Reddy & Raju), if allowed to continue to be at the helm of affairs, may make every effort to derail SEBI’s investigation to unravel the truth in this matter by further forging and fabricating records and misleading SEBI."
In addition, the order bars Narayan Raju and 21 other entities,
(full list of noticees along with full order here), including market veteran Shankar Sharma, from disposing off, either directly or indirectly, any shares of Brightcom Group till further orders.
SEBI said that its investigation has shown that the 22 parties named in the order were preferentially allotted warrants & shares, but in exchange, paid only part of the money due. In some cases, it says no money was paid at all.
The regulator further said that prima facie observations and findings show that manipulations carried out by BGL and other notices that "involve fictitious receipts of share application money from allottees and siphoning of funds from the company."
"BGL has brazenly attempted to cover up its misdeeds by submitting forged and fabricated bank statements to SEBI," it added.
SEBI claimed it has also prima facie found “several instances of accounting irregularities and mis-statements in the financial statements of the Company. As per the findings of investigation, BGL attempted to camouflage accounting entries in excess of Rs 1,280 crore during FY19 and FY20 to give a distorted picture of the company’s financial position.”
It should be noted that this is only an interim order – the
second such order in this case. This is probably the first time that the regulator has seen fit to pass two interim orders in the same case, but justifies this given "the scale and gravity of the manipulation."
The investigation is still on-going, with payments made by 60 allottees to Brightcom Group’s warrants and shares still under examination. An order covering these will be passed shortly.
Brightcom Group has 7 days to place this order before its board of directors. The 24 noticees named have 21 days to file their replies and objections to the order, or seek a personal hearing, the regulator said.